Obstacles to Market Access for Family Farm Hog Producers

Project Overview

LNC95-092
Project Type: Research and Education
Funds awarded in 1995: $50,180.00
Projected End Date: 12/31/1999
Matching Non-Federal Funds: $15,750.00
Region: North Central
State: Minnesota
Project Coordinator:
Mark Schultz
Land Stewardship Project

Annual Reports

Information Products

Commodities

  • Animals: swine

Practices

  • Farm Business Management: market study
  • Sustainable Communities: infrastructure analysis

    Abstract:

    Objectives:
    1. Document farmers’ experiences with packer activity restricting access to markets and causing lower prices to farmers. Identify changes in packer procurement that adversely impact independent producers.
    2. Identify economic impact of packer concentration and vertical coordination on family farm livestock production.
    3. Complete a legal analysis of Packers and Stockyards enforcement.
    4. Publish, disseminate and create discussion of the report, with recommendations.

    Methods:
    Objective 1: a) conduct 25+ in-depth interviews with independent hog producers
    b) gather other information documenting farmers’ experience.

    Objective 2: a) compile and review key economic studies on packer concentration and independent hog farmer market access and price issues.
    b) identify specific packer practices that have a negative impact on prices paid to producers and producers’ access to markets.

    Objective 3: a) summarize and analyze and evaluate the legislative, judicial, and administrative history regarding Packers and Stockyards Act.
    b) describe procedures for obtaining administrative and judicial enforcement.

    Objective 4 a) publish a report describing the findings from Objectives 1 – 3.
    b) publicize the report’s release through media outlets, farm and agricultural meetings, organizational newsletters and websites.
    c) distribute copies of the report to key policymakers and farm and rural leaders.
    d) create and disseminate fact sheets featuring key data and findings.

    Results: This project makes clear the pattern of meatpacker policies and practices that are resulting in vastly decreased market access and lower prices for independent hog farmers. In particular, meatpackers’ use of long-term production contracts with large-scale producers, as well as increasing expansion of packer production of finished hogs in their own facilities (or in joint ventures with large-scale producers), result in independent hog producers being reduced to residual suppliers, used by meatpackers to “fill in” the packers’ supply needs around their large captive supplies. Several changes in industry, producer, and government policy and practice are proposed in the report to address the issue of inequitable access and prices.

    Impacts and Potential Contributions: The publication and dissemination of the report, along with the increased understanding of the issues by participating organizations and hog producers, has raised the awareness of hog producers, farm organizations, and policymakers of the problems and potential solutions related to market access for independent hog farmers. The project highlights the understanding that for a sustainable agriculture to advance in the region beyond the “niche” phase, independent family farm livestock producers must have fair access to markets, both conventional and alternative.

    Introduction:

    The findings about packer impact on market access suggest a clear trend toward preference for capital-intensive, large-scale hog production and captive supply purchasing mechanisms such as marketing contracts or direct ownership. If this trend continues at its present pace, significant expansion of the number of sustainable integrated crop and livestock production operations is highly unlikely, without policy changes that protect the livestock markets from being controlled by a particular sector of the industry, combined with new marketing strategies by family farm hog producers. This study found:

    a) Packers’ practice of acquiring captive supplies through marketing contracts of various kinds, and through direct ownership, is reducing the number of opportunities for small- and medium-sized farmers to sell their hogs. Two major methods used by packers to restrict independent producers’ access to markets were identified: closing of buying stations, and packers simply not buying hogs (or offering competitive prices) off the open market. According to government estimates, nearly 70% of hog slaughter is of hogs that never appear on the open market, whose price is never known, and which are either directly owned by a packer or controlled (“held in captive supply”) by a packer through secret marketing contracts.

    b) With fewer buyers and more captive supply, there is less competition for independent farmers’ hogs and insufficient market information regarding price. Inadequate price discovery results in lower prices, especially when one party (the buyer) knows the prices being paid, but the other party (the seller) does not. This situation is exacerbated in the hog market by the packers’ practice of paying price premiums through confidential marketing agreements with favored producers. Furthermore, hog packer concentration set historic highs, as the four-firm ratio approached 60% by the end of 1998. When the ratio exceeds 40%, firms start having enough market power to have some control over price, and increasing power to control prices as the ratio increases.

    c) Despite some recent indications of growing interest in addressing the impact of packer concentration and vertical coordination in the livestock markets, as of May 1999, the USDA had taken no significant action to reform its trade practices regulations. In particular, the Grain Inspection and Packers and Stockyards Administration (GIPSA) of the USDA is not fulfilling its obligation of enforcing the Packers and Stockyards Act and other laws enacted to protect producers’ interests and ensure open, competitive markets for livestock.

    d) Farmers reported facing daily what they call a “mind game,” which they describe as pressure from agricultural leaders to conform to the new factory farm system of hog production. Whether in the mainstream ag media or Extension-organized conferences, farmers pointed to the constant message that independent hog production will give way to contract production and packer-owned facilities as a major factor impacting their hog production plans and outlook.

    These findings are described in the report, Killing Competition with Captive Supplies, which also recommends federal and state policy action, as well as producer and consumer action, that could be taken to address the situation, and make it possible to keep hog production as a viable strategy for family farmers working towards sustainability.

    Project objectives:

    1. Document farmers’ experiences with packer activity restricting access to markets and causing lower prices to farmers. Identify changes in packer procurement that adversely impact independent producers.
    2. Identify economic impact of packer concentration and vertical coordination on family farm livestock production.
    3. Complete a legal analysis of Packers and Stockyards enforcement.
    4. Publish, disseminate and create discussion of the report, with recommendations.

    Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the view of the U.S. Department of Agriculture or SARE.